) -- As $25 million homes sat on the market and the nation's idea of credit was reduced to cash in a mattress, it was a tough year for the high-end but a good year for luxury.
That distinction disappeared in the years leading up to the economic downturn, yet it is the line of demarcation between the winners and losers in this year's luxury market. Even as an International Council of Shopping Centers-
survey indicated a 1.8% uptick in the luxury market last month, bankruptcies at retailers including Escada,
show luxury's retail winners haven't been sharing the wealth this year.
"Value has become critical," says Greg Furman, chairman and founder of the Luxury Marketing Council. "Educating the best customer about the price-value equation so that people understand why one pays disproportionally for a Brioni suit, for example, is where the best marketers have gone."
Few companies illustrated this thesis as effectively as
. The silk stalwart and Kelly and Birkin bag producer's stock price plummeted from a 52-week high last December to nearly half of that value in early March. Yet, while
Bain & Co.
estimated a 12.5% drop in women's luxury clothing sales this year, it countered that predictions of the "it" bag's death were premature and that sales of leather goods would drop only 4%. That thinking held, as Hermes' stock price came almost all the way back behind a 1.4% increase in revenue over the past nine months that included a 10% bump last quarter. Its leather division's sales in the same period spiked 25%, driven by "very strong" demand for bags.
That contrasts sharply with a company like
, a fractional jet service that presented itself as a less costly alternative for recession-strapped executives ditching their private jets. By abandoning the high-end and pricing itself out of the reach of moderate business travelers, NetJets weakened its value in a shaky U.S. economy.
showed NetJets Chief Executive Officer Richard Santulli the door earlier this year, and 495 of NetJets' 3,000 pilots were dismissed last month, citing a lack of U.S. demand. While an agreement with Saudi Arabia may improve the service's fortunes elsewhere, its aim-for-the-middle approach landed with a decided thud stateside.
Success within the margins is what binds Hermes' companions in the
Claymore/Robb Report Global Luxury Index ETF
( ROB), which made luxury investors very happy this year when it rocketed 60% after cratering in March. According to Furman, Claymore/Robb holdings like
-- which includes Donna Karan, Dom Perignon, Givenchy and DeBeers' retail wing in its stable --
Polo Ralph Lauren
have scaled back their image advertising to niche media like Departures and The Economist. With the $250,000- to $500,000-a-year "aspirational buyer" rendered an endangered species by the recession, many luxury companies turned their attention to the 2.7 million "best customers" with assets of $1 million or more and sank their leftover ad money into customer service.
"It used to be in the old days that these places held sexy events and that was their public relations," Furman says. "Now there are events, but they are what I call 'bespoke' events, where they'll have 50 to 70 people in the store and tell customers to bring a friend instead of inviting a ton of people."
, meanwhile, weathered the year by wooing the "best customer." The company canceled 3.3 million inactive or lightly used cards globally in the second and third quarters and tightened the reins on its loan programs. As a result, its stock price is up nearly 33% since August and credit competitors like
are chasing clientele by releasing products with payment, fee and rewards structures.
Still, "best customers" may be a little less likely to flaunt their largesse. (Champagne's U.S. sales plummeted 43% since 2008, and the Chronicle of Philanthropy said charitable gifts are down 9%.) As a result, Bain says Web purchases of luxury goods are up 20% from last year based on what it calls "luxury shame." However, in a market where it predicted that jewelry sales would fall 12% this year and more than 900 jewelry companies went under in the first six months alone,
Tiffany and Co.
have prospered, with Tiffany's stock surging 81% this year. Saks has learned to manage inventory, and Tiffany and Neiman Marcus offer products in the lower end, strategies that outweigh any perceived "luxury shame."
"That's balderdash," Furman says. "This whole thing of people being ashamed to buy great products that have a tradition of inherent craft was a media frenzy that's come and gone. I don't buy that for a minute."
-- Reported by Jason Notte in Boston.
Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.